Posted by: Woodfork Law | March 19, 2013

Immigration and Estate Planning

Most believe Congress may come to some agreement in the next few years on immigration reform.  One aspect of immigration that rarely gets much attention is how citizenship effects estate planning.

One of the most beneficial tax benefits in estate planning is the unlimited marital deduction.  Simply put, when one spouse passes, all assets may be transferred to the surviving spouse estate tax free.  But, if one spouse is not a U.S. citizen, the unlimited marital deduction is not available.  The most common explanation is that the IRS believes the non-citizen would leave the country and take the assets with them.

The way to solve this problem is to establish a “Qualified Domestic Trust” or QDOT for short.  QDOT trusts allow a US citizen to transfer assets to a non-citizen spouse tax free.  In order to establish a QDOT trust, first, one trustee must be a US citizen or a domestic corporation.  Second, there must be provisions in the trust that dictate withholdings on estate tax on principal distributed.  Third, there must be provisions in the trust that dictates that the trust complies with IRS regulations.  Fourth, when the US citizen spouse passes, the trustee must elect irrevocable QDOT treatment on federal estate tax forms.

With that said, the non-citizen spouse could become a naturalized citizen and take advantage of the unlimited marital deduction.

woodforkandassociates.com

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